Give up hundred things when time to eat comes. Give up thousand things and take bath. Give up lakhs of things and give in charity. Give up crore of things and remember the Lord Hari. —Traditional Saying

Some
time ago, many MPs and Russians were shocked to learn that
Russia's international reserves (gold and foreign currency)
were deposited abroad. They wondered if this was wise, but
soon agreed that investing reserves in reliable foreign securities
and bank deposits was the only way to safeguard them.

Central
Bank governor Sergei Ignatyev has assured that the strategy
of investing international reserves changed after the financial
crisis had spread from the US to other countries. The bank
has cut the share of dollar-denominated assets, including
US mortgage bonds, and increased the share of the euro and
European securities. Nevertheless, the financial crisis has
bitten a large chunk off Russia's international reserves,
which have decreased 24% from $597.5 billion in August to
$453.5 billion by mid-November. Ignatyev said reserves dropped
$97.6 billion in September and October, with $57.5 billion
spent on maintaining the value of the rouble. The rest was
lost to exchange rate fluctuations or spent on assistance
to the banking system.

Ignatyev
refused to say if the Central Bank would continue to support
the ruble at its current level to maintain income, or if it
would gradually devalue it to maintain the international reserves.
Unfortunately, lack of reliable information is motivating
depositors to withdraw their ruble accounts to buy foreign
currency, thereby delivering another blow to the banking system.

Judging
by what the two officials said in parliament, the Russian
economic authorities plan to invest the reserves in the banking
and real economic sectors.

Ignatyev
said the Central Bank had promised Russia's 250 largest banks
to compensate their potential losses in the inter-bank loan
market. The list of recipients may be subsequently increased.

Russian
finance minister Alexei Kudrin said 200-400 billion roubles
($14.5 billion) of the $134.6 billion Reserve Fund, which
is part of the international reserves, could be used to increase
assistance to the regions next year. In all, the government
may take 500 billion roubles ($18.1 billion) or even more
from the fund in 2009, he said. Even if the Reserve Fund does
not grow on high oil prices, it would suffice for seven to
20 years, Kudrin said, using some unfathomable reasoning.

Ignatyev
said inflation would amount to 13%-14% in 2008, which is considerably
more than the target figure. The previous government forecast
of 11.8% annual inflation became reality on November 10. This
means that the interest rates of commercial banks, which cannot
be below inflation, will be very high.

The
CBR governor said there was a silver lining to this storm
cloud, because high rates, which will also be applied to deposits,
may help halt the flight of capital from the country and its
banking system. The Central Bank has contributed to the process
by raising its refinance rate by 1%, to 12% on November 12,
thereby seriously worsening loan conditions in Russia.